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ICICI Direct Report
Q4 is seasonally weak for IT companies on account of fewer working days, some additional furloughs in January. Q4 this year has been eventful for the IT sector wherein on the one hand global IT giant Accenture Plc continued to report strong bookings in the outsourcing business (proxy to Indian IT companies) while, on the other hand, we witnessed fast paced events unfolding in the global banking, financial services and insurance space (30-38% revenue mix for top three IT players).
Some IT players have clarified that they do not have meaningful exposure to regional U.S. banks, which are in financial trouble. Hence, the impact is expected to be minimal.
We do not have the exact break-up of BFSI vertical revenue region wise (i.e. U.S., Europe, etc), but we do understand that U.S. BFSI contributes ~19-20% of its revenue while the further break-up in terms of insurance, banks, etc., is not available.
Consolidation of two large Swiss banks was another big event wherein IT deals at the two companies will likely consolidate in the medium term and may shrink further deal sizes of this account.
The macro environment remains challenging for IT companies as decision making has been on the slower side that could be an additional headwind for Q4 revenues and beyond.
Clients continue to spend on cloud transformation, which is a multi-year opportunity while cost take out deals continue to form a bigger pie in the deals.
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